We Can Save Detroit by Salvaging Its Parts

Richard J. Riordan and Tim Rutten

August 16, 2013, 9:33 AM EDT

Aug. 16 (Bloomberg) -- From barnstorming across the country
to pitch his economic agenda, President Barack Obama knows that
middle-class voters have little appetite for bailing out
Detroit, the largest U.S. city to file for bankruptcy.

The Motor City is the poster child for virtually every
urban ill that sent middle-class Americans scuttling to the
suburbs in the middle of the 20th century: racial animosity,
economic collapse, dysfunctional schools, an incompetent and
corrupt local government, and the truculent hopelessness of the
abandoned poor. The scale of Detroit’s debacle is unique, but
you can find alarming similarities in urban areas from Rhode
Island to California.

The president is right to argue that creating jobs for
skilled workers with wages that put them comfortably in the
middle class is the way forward for urban America. But like
Detroit, too many cities lack the capital to create such
positions. Helping cities raise money and attract a young,
intelligent workforce will require governmental activism coupled
with extraordinary restraint.

In Detroit, one solution that can be implemented
immediately would be the creation of hybrid local-government
structures -- perhaps under joint-powers agreements with the
state or nearby counties -- that can sidestep the embedded and
corrupt bureaucracy that bedevils the city.

New Plan

Consider a city in which power devolves to neighborhoods or
boroughs, relegating decision-making to the community level. In
such a system, rather than operating as a centralized city,
Detroit would function as a federation of communities in which
the greater municipality is responsible for developing
neighborhood laboratories of commercial innovation. These
experimental neighborhoods would be free to tailor their public
services and land-use policies to meet specific needs. Because
the communities would be responsible for smaller areas of land,
they could more easily deal with the issues that plague Detroit,
such as redevelopment, security and road maintenance.

If these communities were properly structured, Detroit
would have a recharged tax base, one no longer dependent on a
single industry -- automotive -- and its subcontractors. A
decentralized system could more effectively use whatever public
funds are available to attract employers from different
industries. This diversity would generate new revenue that would
have to be shared by the existing city administration and the
newly created communities, according to a negotiated formula --
a process that would almost certainly require state oversight
and mediation.

This is where the government would intervene. Like Detroit,
the entire state of Michigan suffers from fleeing capital --
both financial and human. The latter includes graduates of the
state’s highly rated universities who leave to seek
opportunities elsewhere. One of the things Michigan Governor
Rick Snyder -- the former chief executive officer of Gateway
Inc. who memorably ran for office as “one tough nerd” -- has
done is to establish Develop Michigan, a nonprofit organization
that places relatively small amounts of public money into
privately managed investment funds.

These small investments by the state have convinced private
investors, pension funds and insurance companies to provide the
rest of the money for Develop Michigan’s projects. Using this
system, which is run by veterans of the Riordan administration
in Los Angeles, the state has been able to leverage a few
million dollars of public money into a quarter of a billion
dollars in private financing. This is money that investors
haven’t otherwise been willing to lend, no matter how worthy the
project.

Michigan’s investments are also attracting the skilled
workforce that mid-sized companies need to fuel the city and the
state’s recovery. Young, educated workers have already begun
drifting back into parts of Detroit’s urban core over the past
few years.

Building Communities

Once the terms of Detroit’s new municipal system are
established, it wouldn’t take much reinvestment before
decentralized communities can use this funding to develop hubs
devoted to technology, business-to-business services or the arts
-- cheap rents are the foundation of bohemia. Most plausible
would be the advent of new districts that draw on Detroit’s rich
history of industrial design. To begin to address Detroit’s
chronic unemployment, the central city government could use some
of its revived tax revenue to fund retraining programs
specifically geared to the needs of whatever new companies take
root in the surrounding communities.

The most fruitful innovations will occur in ways we can’t
foresee. None of this will happen, though, if reinvestment comes
with the usual strings attached. Public financing has a crucial
role to play, but the government must also be willing to step
out of the way.

Once a model of industrialized efficiency, Detroit is now a
tragic example of urban decline. The city has nothing to lose by
innovating, and experience elsewhere suggests there is a lot to
be gained. If it succeeds, Detroit could soon become the model
of post-industrial recovery.

(Richard J. Riordan, a lawyer, investor and philanthropist,
was mayor of Los Angeles from 1993 to 2001. Tim Rutten is a
columnist for the Los Angeles News Group.)